Written by Kevin Buckland
TOKYO (Reuters) – The dollar rose on Tuesday as traders looked to the key U.S. retail sales report and comments from Federal Reserve officials to better gauge the timing and pace of interest rate cuts.
The index, which measures the currency against the euro, pound, yen and three other major currencies, rose 0.11% to 105.39 in Asian hours.
On Monday, it lost 0.2% after falling from its highest level in a month and a half, which it recorded on Friday at 105.80.
The dollar was pulled in both directions as moderate US inflation readings contrasted with the overall hawkish stance by Federal Reserve officials at a policy meeting last week, when they trimmed their previous median forecast of three-quarters of a point interest rate cuts this year to one.
Instead, the rise in the euro zone was mostly driven by a sharp sell-off in the euro, after French President Emmanuel Macron called a surprise early election last week in response to the defeat suffered by his ruling centrist party at the hands of Marine Le Pen's anti-EU National Rally. In the European Parliament elections.
“If you look at the flow of data coming out of the U.S., the inflation data and labor market data indicate a shift in Fed policy,” said Rodrigo Catril, chief currency strategist, despite officials reducing expectations for interest rate cuts. Strategist at National Australia Bank (OTC:).
“For now, the safe-haven appeal of the dollar is what keeps it supported,” Cattrell added, expecting the dollar index to remain within its recent 104-106 range for the time being.
Philadelphia Fed President Patrick Harker revealed Monday that he is in the go-it-alone camp, but left the door open to change his view depending on incoming data.
A long list of Fed officials will take to the podium at various venues later in the day, including Susan Collins of the Federal Reserve Bank of Boston and Thomas Barkin of the Federal Reserve Bank of Richmond.
The dollar was little changed at 157.675 yen on Tuesday.
The euro fell 0.12 percent to $1.0721, reducing part of the previous session's 0.26 percent rise. The British pound fell 0.07 percent to $1.2696.
The euro stabilized somewhat this week after Le Pen indicated that she does not intend to pursue extreme fiscal policies if she is in power, and that she is not pushing to oust Macron.
“It has become clear that a hung parliament is the base case for the market, and calmer heads would say that a government that includes Le Pen's National Front party is unlikely to rock the financial boat too badly,” said Chris Weston, head of research at Pepperstone.
“Le Pen has a presidential election to win in 2027, and that can only happen if the party wins the respect of the bond market.”
Meanwhile, the dollar was unaffected by the Reserve Bank of Australia's decision as expected to keep interest rates steady on Tuesday, and was little changed at US$0.66115.
“The RBA’s position has been well stated: they are in a wait-and-see mode until they get more inflation data,” NAB’s Cattrell said.
“Australia's muted reaction is not surprising.”
The New Zealand dollar fell 0.27 percent to $0.61145.
In cryptocurrencies, Bitcoin lost about 1% to $65,725, and earlier touched a one-month low at $64,569.70.